Sept. 16 (Bloomberg) -- Indian inflation unexpectedly
accelerated to a six-month high in August as the rupee’s slide
stoked import costs, adding pressure on central bank Governor
Raghuram Rajan to sustain efforts to support the currency.

The wholesale-price index rose 6.1 percent from a year
earlier, compared with July’s 5.79 percent climb, the Commerce
Ministry said in New Delhi today. The median estimate of 25
analysts in a Bloomberg News survey was for a 5.7 percent gain.

Rajan unveils his first monetary-policy decision this week
after becoming governor on Sept. 4 and inheriting interest-rate
increases from July aimed at aiding the currency. He’s pledged
to contain inflation expectations and stepped up efforts to
boost foreign-exchange reserves, prompting a climb in the rupee
that’s pared its drop versus the dollar in 2013 to 12.5 percent.

“Monetary tightening can’t be reversed until we start
seeing a consistent decline in inflationary pressures,” said
Rupa Rege Nitsure, an economist at Bank of Baroda in Mumbai.
“India has entered a stagflationary phase.”

The rupee, up 4.6 percent this month, pared gains after the
release and ended the day 1 percent higher at 62.845 per dollar
in Mumbai. The S&P BSE Sensex stock index rose 0.1 percent. The
yield on the 7.16 percent bond due May 2023 fell to 8.43 percent
from 8.49 percent on Sept. 13.

Dollar Weakens

The dollar weakened against major peers as former Treasury
Secretary Lawrence Summers withdrew his bid to become U.S.
Federal Reserve chairman. Summers would have tightened policy
more than Janet Yellen, who is among the front-runners to
replace Ben S. Bernanke, a Bloomberg Global Poll showed.

India’s current-account gap and slowing economic growth
left it vulnerable to the capital flight from emerging markets
triggered by the prospect of reduced U.S. monetary stimulus.

Every 10 percent decline in the rupee adds as much as 80
basis points to wholesale inflation, according to Nomura
Holdings Inc.

Food prices climbed 18.2 percent in August from a year
earlier, with onion costs surging 245 percent, today’s report
showed. Fuel and power jumped 11.3 percent. Non-food
manufactured goods prices, a measure of core inflation, advanced
1.97 percent after a 2.33 percent gain in July, according to
Bloomberg calculations based on the data.

Interest Rates

The RBI raised two interest rates in July to increase
shorter term borrowing costs and capped cash injections into the
banking system, seeking to curb the supply of rupees.

The benchmark repurchase rate was left unchanged after cuts
earlier in 2013. Rajan will keep it at 7.25 percent at the Sept.
20 review, Standard Chartered Plc and Morgan Stanley said.

The governor on Sept. 4 announced a plan to provide
concessional swaps for banks’ foreign-currency deposits, a move
that will boost foreign reserves by $10 billion, according to
Bank of America Merrill Lynch.

Rajan delayed the September review to follow the Fed’s
meeting. The U.S. monetary authority will probably trim its
monthly bond-buying program by $10 billion to $75 billion this
week, a separate survey of economists showed.

Singh is striving to revive investment, tame price
pressures and woo fund inflows before elections due by May.
Slower expansion imperils the nation’s fight against poverty.

A separate gauge of inflation based on consumer prices rose
9.52 percent last month from a year earlier.

The government has raised taxes on gold imports and eased
curbs on investment from abroad to bolster Asia’s No. 3 economy.
It predicts the current-account gap will narrow to about $70
billion in the fiscal year ending March 2014 from a record $87.8
billion in the previous 12-month period.

Banks from HSBC Holdings Plc to Goldman Sachs Group Inc.
have lowered their growth projections for India following the
RBI’s moves in July. Both expect 4 percent expansion in
2013-2014. The average in the past decade is about 8 percent.